VANCOUVER, British Columbia—A Canadian judge granted bail to Huawei Technologies Co. finance chief
Meng Wanzhou,
setting the stage for a new confrontation with China as the U.S. seeks the executive’s extradition to face charges over violating Iran sanctions.

The judge’s decision Tuesday frees Ms. Meng after more than a week in detention, though it requires her to submit to a curfew, electronic monitoring and a limited range of travel in the Vancouver area.

Justice
William Ehrcke,
of the Supreme Court of British Columbia, set bail at 10 million Canadian dollars ($7.5 million) and said Ms. Meng is due back in court in February.

Ms. Meng, the 46-year-old daughter of Huawei’s billionaire founder Ren Zhengfei, has denied those allegations. She now awaits possible extradition to the U.S., where she could face multiple criminal charges that each carry up to 30 years in prison.

Huawei, which has said it isn’t aware of any wrongdoing by Ms. Meng, said in a statement Tuesday it is confident “the Canadian and U.S. legal systems will reach a just conclusion in the following proceedings.”

The arrest of a former Canadian diplomat in China and unexpected comments from President Trump raise a fresh question about the case of Huawei's Meng Wanzhou, who has now been released on bail: How political is it? Photo: Associated Press

Justice Ehrcke approved conditions proposed by Ms. Meng’s lawyer that call for her to be watched around the clock by a three-person detail, including security personnel and a driver. She will be required to wear an electronic monitoring device at all times.

Ms. Meng also must live at one of the two Vancouver homes she owns, stay within the region and submit to a curfew from 11 p.m. to 6 a.m., unless she is given permission from her bail supervisor or the court, or has a medical emergency.

Justice Ehrcke also mandated five people act as surety—a supervisor for an accused person out on bail who takes on financial risk if she violates the terms of her release.

Ms. Meng’s arrest added a new dynamic to months of intense back-and-forth between the U.S. and China over issues ranging from tariffs to intellectual-property theft to dominance in key technologies such as 5G services. Those tensions had appeared to be easing as the two countries called a cease-fire in their trade tiff; then Ms. Meng was detained, threatening to undermine the detente.

The U.S. and China recently moved forward with a new round of trade talks, while Chinese state media and social-media censors have made an apparent effort to separate the Huawei issue from the negotiations.

Still, Ms. Meng’s arrest drew a sharp response last week from China, which warned Canada to release her or face unspecified “severe consequences.”

Canadian Foreign Minister
Chrystia Freeland
reiterated on Tuesday that Ms. Meng’s detention wasn’t a political decision and that Canadian political officials had no direct role in her detention. Meanwhile, Canada also confirmed Tuesday that a former diplomat who researches North Korea and other issues for a global-monitoring group was detained in China. The terms of his detention weren’t clear.

The judge questioned Mr. Liu’s eligibility, since he is visiting Canada on a visa that expires in six months and because he isn’t a resident of British Columbia. On Tuesday, Ms. Meng’s attorney, David Martin, proposed alternatives to serve as surety: a real-estate agent, an insurance agent, a homemaker and a part-time yoga instructor.

Together the group pledged more than 3 million Canadian dollars in cash and home equity to act as surety. Ms. Meng is responsible for the rest. A justice of the peace must ultimately sign off on those who will serve as surety.

Ms. Meng’s attorneys raced to get that signed off and finalize all other details in place, to secure her release by the end of the day.